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What is a Bond?
If you have ever lent money to someone you trust, you already understand most of it.
A is like a loan you give to a company or the government. They promise to pay you back later, with some extra money along the way. Think of it as lending ₹10,000 to a trusted relative. They pay you a little extra every year, and return your full ₹10,000 on a fixed date.
The extra money you receive each year is called the . The fixed date is the . The original amount is the . That is genuinely most of it.
A small worked example
Suppose you lend ₹1,000 to a bond that pays a coupon of 7% every year, for 3 years. Here is what happens, year by year:
- 1Year 1: You get ₹70 as interest (7% of ₹1,000).
- 2Year 2: You get another ₹70 as interest.
- 3Year 3: You get ₹70 as interest, plus your original ₹1,000 back.
By the end, you have received ₹210 in total interest, and your full ₹1,000 back. That is the entire idea of a bond, in one small example.
Four words worth keeping
Quick glossary for this article
- Face value: The original amount printed on the bond. You get this back on the maturity date.
- Coupon: The yearly interest the bond pays you, shown as a percentage of the face value.
- Maturity date: The day the bond ends, and your face value comes back to you.
- Safer or riskier borrowers: Some borrowers are more likely to repay on time than others. That difference is what a credit rating tries to describe.
Words like , , and come up later — every one of them has a plain explanation in the glossary.
This article is for general education only. It does not tell you what to buy. Every person's money situation is different — please think about your own needs, or talk to a licensed adviser, before investing.
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1. What does the face value of a bond tell you?
2. A ₹1,000 bond pays a 7% coupon. What do you receive each year?
3. What happens on the maturity date?
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